# EUR-Lex - 52003TA1230(08) - EN

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# 52003TA1230(08)

**Report on the financial statements of the European Training Foundation for the financial year 2002, together with the Foundation's replies **

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Official Journal C 319 , 30/12/2003 P. 0047 - 0054 *

Report

on the financial statements of the European Training Foundation for the financial year 2002, together with the Foundation's replies

(2003/C 319/08)

CONTENTS

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THE COURT'S OPINION

1. This report is addressed to the European Parliament and to the Council, in accordance with Article 185(2) of Council Regulation (EC, Euratom) No 1605/2002(1).

2. The Court has examined the financial statements of the European Training Foundation for the financial year ended 31 December 2002. In accordance with Article 11(1) of Council Regulation (EEC) No 1360/90(2), the budget was implemented on the responsability of the Director. This responsability included the drawing-up and presentation of the financial statements(3) in accordance with the internal financial provisions provided for in Article 12 of Council Regulation (EEC) No 1360/90. The Court of Auditors is required pursuant to Article 248 of the Treaty establishing the European Community to audit these accounts.

3. The Court carried out the audit in accordance with its auditing policies and standards, which have been adapted from generally accepted international auditing standards to reflect the specific nature of the Community context. The Court carried out such tests of the accounting records and applied such other procedures as it deemed necessary in the circumstances. Through this audit, the Court obtained a reasonable basis for the opinion expressed below.

4. This examination has enabled the Court to obtain reasonable assurance that the annual accounts for the financial year ended 31 December 2002 are reliable and that the underlying transactions, taken as a whole, are legal and regular.

OBSERVATIONS

Introduction

5. The European Training Foundation was created by Council Regulation (EEC) No 1360/90 of 7 May 1990. Its purpose is to support the reform of vocational training in the European Union's partner countries. It supports the reform of vocational training in more than 40 countries and facilitates access to Community expertise and practice in the general field of human resources development. As such, it assists the Commission in the implementation of the MEDA, CARDS, Tacis and Tempus programmes.

Budgetary implementation

6. Table 1 shows the implementation of the appropriations for the year 2002 and the appropriations carried over from the previous financial year.

7. The 2002 appropriations were committed up to the level of 16,6 million euro; they were disbursed in payments amounting to 13,2 million euro. The balance of the appropriations was either carried over (3,4 million euro) or cancelled (0,2 million euro). The volume of carryovers remains high as regards the operating appropriations where they represent more than 50 % of the year's commitments. The extent of these carryovers shows that the Foundation needs to improve the quality and monitoring of its work programme with the aim of observing the principle of annuality more faithfully.

8. The Foundation has entered into an agreement to set up a support project for small and medium-sized businesses in Albania. In 2002 the Foundation managed 0,5 million euro under this agreement. This activity is not mentioned in the budget and appears only at balance sheet level.

9. On the basis of agreements concluded with the Commission, the Foundation manages Phare and Tacis programmes, including technical assistance for the implementation of the Tempus programme (see paragraph 5). These programmes amount to a sum total of 244,7 million euro. In 2002, the Foundation made payments of 31 million euro for these programmes and, on 31 December 2002, the balance of the corresponding bank accounts amounted to 26,5 million euro. More than 20 of the 123 people(4) employed by the Foundation work full time on these programmes, which are outside the budget. As the Court has pointed out in earlier reports(5), no data relating to these programmes appear in the budgetary implementation statement, the balance sheet or the budget outturn. Instead, the Foundation presents the relevant financial information in an annex to its financial statements. This way of accounting for them raises the question of whether the principle of budgetary unity is being observed and, on the accounting level, whether such a procedure is compatible with the principle of "reality over appearance"(6). Furthermore, it makes the task of auditing the use of these funds more complex.

Accounting and financial statements

10. The revenue and expenditure account and the balance sheet published by the Foundation in its annual report for the financial year 2002 are presented in summary form in Tables 2 and 3.

11. During the financial year, the Commission only paid the Foundation 13,2 million euro out of the subsidies of 16,8 million euro entered in the budget. This situation explains the deficit for the financial year.

12. The introduction of a fixed asset inventory procedure, and of software for fixed asset management, follows the recommendations made by the Court in its report for 2001(7). Nevertheless, there is still room for improvement as regards the completeness of the fixed assets item and, in particular, the inclusion of software, and the possibilities for reconciliation with the financial statements.

13. The Translation Centre for the bodies of the European Union asks its clients to pay it an advance at the beginning of the financial year. Under this heading, the Foundation paid the Translation Centre a sum of 150000 euro. The advance was recorded as expenditure during the financial year and, at the end of the year, the appropriations automatically carried forward were not adjusted accordingly. As a result, this sum was recorded under expenditure twice.

14. Certain payment procedures used by the Foundation ought to be revised or amended with a view to reducing the risks associated with them, particularly as regards the transfer of funds to third countries. For the same reason, the amount (40000 euro) currently authorised for the "petty cash" subaccount used for cash payments should be reduced.

Legality and regularity of the underlying transactions

15. The Director of the Foundation signed an agreement with the Director of the European Centre for the Development of Vocational Training which stipulated that a member of the Foundation's staff would be made available to the Centre in return for the reimbursement of his salary by the Centre. During the 20 months that this situation lasted, the person in question, a Greek national, received the foreign residence allowance and the weighting for Italy, although he was working at the central office of the Centre in Salonica.

16. Every month the Commission sends a list of the former employees of the Foundation who are entitled to the unemployment allowance. None of them has forwarded the monthly certificate required(8) in order to receive this allowance and the Foundation does not carry out any checks in order to verify their true situation.

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 15 and 16 October 2003.

For the Court of Auditors

Juan Manuel Fabra Vallés

President

(1) OJ L 248, 16.9.2002, p. 1.

(2) OJ L 131, 23.5.1990.

(3) As required pursuant to Article 11(3) of Council Regulation (EEC) No 1360/90, the detailed accounts of all the Foundation's revenue and expenditure for the financial year 2002 were drawn up on 28 March 2003 and forwarded to the Court of Auditors. These accounts were received by the Court on 31 March 2003. A summarised version of these financial statements is presented in the tables annexed to this report.

(4) Figure as at 31 December 2002.

(5) Paragraph 8 of the report concerning the financial year 2001 (OJ C 326, 27.12.2002, p. 51); see also paragraph 11 of the report concerning the financial year 1999 (OJ C 373, 27.12.2000, p. 34).

(6) According to this principle, accounting operations that appear in the financial statements must be presented on the basis of their economic nature and not their legal appearance. This principle is laid down in Article 78 of Commission Regulation (EC, Euratom) No 2343/2002 on the framework Financial Regulation for the bodies referred to in Article 185 of Council Regulation (EC, Euratom) No 1605/2002 on the Financial Regulation applicable to the general budget of the European Communities (OJ L 357, 23.12.2002, p. 72).

(7) Paragraphs 9 and 10 of the report concerning the financial year 2001 (OJ C 326, 27.12.2002, p. 51).

(8) Title II, Chapter 6, Article 28a(2) of the Conditions of employment of other servants of the European Communities (Staff Regulations) states that in order to be eligible for unemployment allowance, a former member of the temporary staff shall:

(a) be registered, at his/her own request, as seeking employment with the employment authorities of the Member State in which he/she establishes his/her residence;

(b) fulfil the obligations laid down by the law of that Member State for persons in receipt of unemployment benefits under that law;

(c) forward every month to the institution to which he/she belonged, which shall immediately forward it to the Commission, a certificate issued by the competent national employment authority stating whether or not he/she has fulfilled the obligations and conditions referred to in (a) and (b).

Table 1

European Training Foundation - Implementation of the budget for the financial year 2002NB:

Any discrepancies in totals are due to the effects of rounding.

Source:

Data compiled by the Foundation - These tables summarise the data supplied by the Foundation in its own financial statements.

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Table 2

European Training Foundation - Revenue and expenditure account for the financial years 2002 and 2001((The revenue and expenditure account and balance sheet only take account of the Foundation's specific activities: they ignore programmes managed on behalf of the Commission or other bodies.))

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NB:

Any discrepancies in totals are due to the effects of rounding.

Source:

Data compiled by the Foundation.

Table 3

European Training Foundation - Balance sheet at 31 December 2002 and 31 December 2001((The revenue and expenditure account and balance sheet only take account of the Foundation's specific activities: they ignore programmes managed on behalf of the Commission.))NB:

Any discrepancies in totals are due to the effects of rounding.

Source:

Data compiled by the Foundation - These tables summarise the data supplied by the Foundation in its own financial statements.

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The Foundation's Replies

Budgetary implementation

7. The high rate of payments (90 % average over the past four years) on carried forward amounts demonstrates that behind commitments there has always been a well-planned activity. As mentioned in previous Foundation replies, the nature of activities, the fact that our partners are mostly public sector entities and that the Foundation adopts a participatory approach, require long decision times. This situation makes it difficult for the Foundation to decide on its own about the implementation timetables. The introduction of multiannual payment appropriations, as a result of the new Financial Regulation, will solve this problem.

The Foundation management constantly reviews the budget implementation using tailor-made reports and tools, which are expected to be equally useful in the monitoring of the use of multiannual appropriations.

8. To comply with the principle of unity of the budget, starting from the year 2003 the Foundation will include Title IV and other earmarked funds in the statement of expenditure and budget implementation table, under headings clearly distinct from those used for the annual subsidy.

9. To comply with the accounting principle of "reality over appearance" of the new Financial regulation, the Foundation is ready to show the convention funds in its financial statements for the year 2003 as recommended by the Court. In order to ensure that these convention funds will not be double-accounted in the final consolidated accounts of the Commission, the Foundation will need to consult the Commission for the modalities of the presentation.

Accounting and financial statements

12. In 2002 the Foundation developed a new in-house software for the management of the inventory and fixed assets. The short time available for testing before the preparation of the accounts led to some problems with the implementation of the software. The Foundation is pleased to report that the problems are now fixed and the system satisfies the needs related to financial reporting.

13. The advance (EUR 150000) paid to the TC was administrated as expenses. The Foundation agrees that it should have been treated as an advance, but there was a divergence of opinions on this with the Financial Control.

14. The Foundation has reduced the endowment of the imprest account to EUR 2500 with a decision of 10 April 2003 on a proposal of the accounting officer and concerned authorising officers.

Legality and regularity of underlying transactions

15. The secondment of one temporary agent employed by the Foundation to Cedefop has been the first attempt at mobility and exchange of staff between the two agencies. The agent was selected by Cedefop, following an official procedure for the recruitment of a national expert (END). Accordingly, the Foundation applied the rules for the END's remuneration.

However, the Foundation agrees with the Court's observation that the approach taken was not the most appropriate. The agent's contract with the Foundation has now expired and with it also the secondment arrangement.

16. The unemployment allowance to former Foundation agents is paid directly by the Commission, since the Foundation Director has delegated to DG Admin (now the Paymaster's Office) this task. On this basis, the Foundation assumed that the Commission would make regular checks and directly request the necessary proofs before paying any amount.